Chris Martenson has an excellent report about how the Treasury is creating debt (printing money) trying to keep the game going. This is an excellent, easy-to-understand report. Please read.

Foreigners are NOT buying US debt, no matter what F-TV says. And they haven’t been buying it for a while.

Make sure you are ahead of the crowd, the exits out of the dollar will be clogged.

This report will also show you why the Fed doesn’t want to be audited. It would reveal the shell game….Fed is purchasing its own debt and NO ONE really wants the dollar.

Once the game is exposed, the Fed doesn’t sell any more debt and can’t keep the economy propped up. What do you think will happen then?

Bold type: groovygirl, rest is Chris’ conclusion.

A fair question to ask here is, “If there are green shoots everywhere and the stock market is racing off to new yearly highs, why is the Fed continuing to pump money into the system at these mind-boggling rates?” One answer could be, “Because things might not be as rosy as they seem.”

Conclusion

The Federal Reserve has effectively been monetizing far more US government debt than has openly been revealed, by cleverly enabling foreign central banks to swap their agency debt for Treasury debt. This is not a sign of strength and reveals a pattern of trading temporary relief for future difficulties.

This is very nearly the same path that Zimbabwe took, resulting in the complete abandonment of the Zimbabwe dollar as a unit of currency. The difference is in the complexity of the game being played, not the substance of the actions themselves.

When the full scope of this program is more widely recognized, ever more pressure will fall upon the dollar, as more and more private investors shun the dollar and all dollar-denominated instruments as stores of value and wealth. This will further burden the efforts of the various central banks around the world as they endeavor to meet the vast borrowing desires of the US government.

One possible result of the abandonment of these efforts is a wholesale flight out of the dollar and into other assets. To US residents, this will be experienced as rapidly rising import costs and increasing costs for all internationally-traded basic commodities, especially food items. For the rest of the world, the results will range from discomforting to disastrous, depending on their degree of dollar linkage.

Under these circumstances, “inflation vs. deflation” is not the right frame of reference for understanding the potential impacts. For example, it would be possible for most of the world to experience falling prices, even as the US experiences rapidly rising prices (and hikes in interest rates) as a consequence of a falling dollar. Is this inflation or deflation? Both, or neither? Instead, we might properly view it as a currency crisis, with prices along for the ride.

Further, all efforts to supplant private debt creation with public debts should be met with skepticism, because gigantic programs are no substitute for the collective decisions of tens of millions of individuals and cannot realistically meet millions of individual needs in a timely or appropriate manner.

The shell game that the Fed is currently playing does not change the basic equation: Money is being printed out of thin air so that it can be used to buy US government debt.

My advice is to keep these potential issues and insights in sharp focus, make what moves you can to diversify outof dollars, and be ready to move rapidly with the rest. This game is far from over.

Jim Sinclair believes this game with the dollar will last about another 77 days and the start of the decline to collapse. We will see if he is correct. Are you prepared? Is your capital (and savings) preserved out of the way of a falling dollar?

Permanent backwardation in gold has never ever been experienced — unless we imagine that there is a gold futures market in Harare. Gold is not available at any price quoted in Zimbabwe dollars. In that sense the last contango has first occurred in Zimbabwe.

I think we will see the situation in gold that he is talking about, but it is a question of when? 2 years? 10 years? 20 years?

Gold backwardation is different from hyperinflation of the USDollar, but in the same feedback loop.

As a global community, we have never been in this situation:

All countries printing money with nothing tied to gold or any limit at all. Even Rome had parts of precious metals in their currency during the “waterfall effect” that Martin Armstrong refers to.

We just don’t know how the printing of massive dollars and the breakdown in the paper market of gold will effect currency, trade, global tensions, commerce.

It could be negative gold and paper money can “fool” the common man for a long time.

Don’t be fooled, hold physical gold, not paper. Protect your capital from the devaluation of the dollar.

One thing I am sure of….when this collapses, there will be no warning just prior to the event. Get prepared now.

The next twenty years will be completely unlike the last twenty years.

Gold specific on pages 14-end, read the whole thing if you have the time. These are tools to help you prepare for the financial changes now and ahead.

Martin makes a suggestion that we will see a decline after Labor Day 2009 through 2010. This could include gold. However, do not sell gold. Buy at the lows. Prepare now, 2010-2015 will be fast changing. Debt is the killer, the government can not cover up the damage that as ALREADY happened forever. Once the public realizes the damage, confidence will be lost.

This letter is a recap of the how the Economic Confidence Cycle and the Pattern Projection Analysis has been illustrated in the past 20 years. It is helpful in understanding Martin’s concepts with real data and dates as examples. Study this. Reread and reread to understand.

And answer to the question is ….yes.

Learn these patterns so you may invest AHEAD of the curve and sell before the top. In this time of currency crisis and collapse, capital preservation is the first objective.

Martin’s concluding paragraph:

In other words the real peak in equity is targeted to the next peak in Economic Confidence Model 2015.75. For now we may see a 6 month rally. The main resistance is 11,000 in the DOW. We need a monthly closing above that level to signal the March 2007 low will hold. Otherwise we should expect a test of the lows and perhaps even new lows going into 31.4 months down from the October 2007 high with a rally into the neat target 2015.75 reaching $30,000+.

Summary of short term predictions regarding the DOW (equities in general):

If we do not reach 11,ooo DOW that holds, expect a collapse to some point through to June 2010.

At some point between June 2010 and 2015 the DOW will move toward $30,000. That will be a “flight to private” equity AND hyperinflation in the dollar.

This gives you a time line for protecting your dollars. There will be a time of disconnect where the dollar’s purchasing power plummets and the DOW reaches 30,000. Gold/silver is good for that middle time.

$30,000 DOW, impossible, you say….no, that’s hyperinflation or collapse of the USDollar.

Groovygirl is recommending physical gold and silver for the coming hyperinflation and currency crisis, but there will come a time to move to another “investment”. Understanding Martin’s models will give you the tools to understand which investments before the herd.

The key is to get in before the herd, but more importantly get OUT before the herd.

(Uncle) Harry Schultz has some predictions. I will generalize here, you need to pay for the really good stuff. Well worth the money.

He confirms what Jim Sinclair, Martin Armstrong, and myself (and many others) have been saying all along. The worst is not over. Even Roubini is talking about a double-dip depression.

Defaults in mortgage debt is tapering off, but the real bad defaults (option arms, ALT-As) will start resetting in May 2010 thru October 2011.

Stock Market may continue to rise, but it will be over by mid-year 2010.

Next leg down in the crisis will last longer than the first.

Debt is still the killer. It will wipe out the poor and middle class.

Predicts that we will trend toward deflation for the next 5-6 months, especially unemployment, defaults, foreclosures.

Then if the Fed’s printing press does not reverse deflation, a collapse in the currency.

Or an overshoot with high prices for 8 months or so. People will panic and start to buy useful “things”, not investments, not cash.

Either way we are looking at hyperinflation for 10-14 months.

At which point, the government may revalue the dollar, buy the nation’s gold (at a reduced rate), the list goes on.

Uncle Harry says that we have to keep an eye on this, situation could change at anytime.

But his predictions are still in line (but a little ahead) with Martin Armstrong’s Economic Cycle timing.

We will keep watch.

GroovyGirl’s strongest conviction for this hyper-inflationary scenario is the fact that Ben (and Larry and Timmy) have faced a crisis and done what governments have always done…..printed money. It just doesn’t work forever. He will try this again when faced with another crisis. Printing money has NOT fixed the problem.

Uncle Harry may be a little radical to some, but HSL portfolio was up over S&P 500 since 2003. Last year S&P was down 38%, HSL was up 12.3%.

Buy gold and silver or purchase HSL and invest in his stock suggestions.

Blogger Project Mayhem over at zerohedge.com has a BEAUTIFUL summary of concerning issues. LOVE those guys at zero-hedge. I am very concerned that the government is in the process of constructing a bubble in the stock market.

If this is the case, we can expect a bubble (and burst). It is the burst part that is extremely concerning as we have still not drained the fall out from the last burst. Groovygirl’s opinion, the longer the delay in the next leg down, the worse the next leg down.

It is possible that the government/Fed, etc. is using the low volume of summer to unload some of the those toxic assets on the herd, and cooler heads will prevail in September. We shall see.

Summary:

The government is in the stock market in a volume not seen before. Not sure if this can be sustained or will be withdrawn. Equity bubble creation, trade at your own risk.

Capital is leaving the US. Dollar negative.

FDIC is broke, but can borrow more from the government. Dollar negative.

Treasury tries to sell another $200 Billion this week. (Yes, with a B). How long can others buy or Ben monetize? Dollar negative.

Central Asia is a power keg with at least 4 fuses. More war, more debt creation. Dollar negative. Possible distraction from domestic economic issues coming soon to a 24-hour news network near you.

August 24, 2009

I haven’t addressed the specifics of the controlled implosion of the banking system in a while. Basically, is your bank next?

The nice guys at calculatedriskblog.com have put together an unofficial list. There are other lists out there, but I like this one because it shows you what kind of letter the bank has received…warning, cease and desist? It gives you a better idea about how bad it might be for your bank.

I have always advised that you spread your money over at least 3 banks and have some cash at home. I still advise that. If one of your banks is on this list, I suggest you start taking steps to move your money to another bank (not on this list). Business accounts, too!

There are no guarantees here. Banks will implode not on the list, some banks will survive, and we could have a surprise national banking holiday. In this crisis, all options are possible. So prepare as best you can.

Richard Bove, an analyst on Wall Street, claims that 200 banks will close in the next year. That’s an average of 4 per week. Feeling lucky?

IMO, it will be closer to 500 before the controlled implosion is complete in 2012.

Side musing: I know that alot of rumors are flying around the internet about a national bank holiday and runs on banks today and thru September. I can not confirm any of these dates, but if you have protected your cash as I have suggested, you will not need toworry about it.

The P/E Ratio is one of the ratios that investors use to decide if a stock is a good value. It is the price of a stock divided by the earnings of the company. When the P/E ratio is high, it’s time to hold or sell, the stock is over valued. When the P/E ratio is low, it is time to look into buying.

This is one of the tools you can use to verify what the financial talking heads or your investment broker tells you. Even if we are “on the cusp of a recovery”, as Ben said Friday, either stock prices have to come down, or earnings have to go way up for stocks to be considered a value.

If you are a long term investor (and if you have a 401K, you are), stocks are not the best value right now. If you are in the rigged market that is Wall Street, day-trade at your own risk.

Of course, each stock is valued in its own right, but here is a chart that shows the general conditions of the market. This chart is from chartoftheday.com (thanks, guys):

This says it all!

Side musing: notice the change in trend…..upward in the 1980’s. Do you suppose that this is the work of inflation, dollar off the gold tie, production sent overseas, or the change from pension to 401K retirement plans? All of the above, none of the above? What happens when those things change again?

Yet, like last week, the comparison between domestic and foreign weekly securities purchases is trivial: $7 billion versus $86 billion: the US is promptly becoming its own largest debtor… by a factor more than 10x.

10X………..this is not sustainable and if it doesn’t work, what then?

If it does work, how does the government pay interest on that money? They will not be able to drain the money and then rise rates. At best there will be a time of high debt and high rates. Interest on US debt will rise either because debtors demand it or because the economy starts to recover (I believe it will be the former, but the SPIN will claim its the latter).

Remember the USgov MUST borrow at least the amount of the interest due on its debt. (They always borrow alot more to pay for gov.programs, bailouts, war, etc.)

This is what is called compounding debt or paying only the minimum payment on your credit card. Even if you have a 1% interest on your credit card, it’s still compounding, just at a slower rate.